Dunkin' Donuts 2015 Annual Report Download - page 71

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-61-
separately in the consolidated statements of operations and comprehensive income, respectively. During the second quarter of
fiscal year 2015, the Company purchased the remaining interests in the limited partnership.
(c) Accounting estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates, judgments,
and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent
assets and liabilities at the date of the financial statements and for the period then ended. Significant estimates are made in the
calculations and assessments of the following: (a) allowance for doubtful accounts and notes receivables, (b) impairment of
tangible and intangible assets, (c) other-than-temporary impairment of equity method investments, (d) income taxes, (e) share-
based compensation, (f) lease accounting estimates, (g) gift certificate breakage, (h) management fees charged to subsidiaries
and affiliates, and (i) contingencies. Estimates are based on historical experience, current conditions, and various other
assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments
about the carrying values of assets and liabilities when they are not readily apparent from other sources. We adjust such
estimates and assumptions when facts and circumstances dictate. Actual results may differ from these estimates under different
assumptions or conditions.
(d) Cash and cash equivalents and restricted cash
The Company continually monitors its positions with, and the credit quality of, the financial institutions in which it maintains
its deposits and investments. As of December 26, 2015 and December 27, 2014, we maintained balances in various cash
accounts in excess of federally insured limits. All highly liquid instruments purchased with an original maturity of three months
or less are considered cash equivalents.
Cash held related to the advertising funds and the Company’s gift card/certificate programs are classified as unrestricted cash as
there are no legal restrictions on the use of these funds; however, the Company intends to use these funds solely to support the
advertising funds and gift card/certificate programs rather than to fund operations. Total cash balances related to the advertising
funds and gift card/certificate programs as of December 26, 2015 and December 27, 2014 were $148.6 million and $136.2
million, respectively.
In accordance with the Company’s securitized financing facility, certain cash accounts have been established in the name of
Citibank, N.A. (the “Trustee”) for the benefit of the Trustee and the noteholders, and are restricted in their use. The Company
holds restricted cash which primarily represents (i) cash collections held by the Trustee, (ii) interest, principal, and commitment
fee reserves held by the Trustee related to the Company’s Notes (see note 8), and (iii) real estate reserves used to pay real estate
obligations. Changes in restricted cash accounts are presented as either a component of cash flows from operating or financing
activities in the consolidated statements of cash flows based on the nature of the restricted balance.
(e) Fair value of financial instruments
The carrying amounts of accounts receivable, notes and other receivables, assets and liabilities related to the advertising funds,
accounts payable, and other current liabilities approximate fair value because of their short-term nature. For long-term
receivables, we review the creditworthiness of the counterparty on a quarterly basis, and adjust the carrying value as necessary.
We believe the carrying value of long-term receivables of $2.4 million and $3.1 million as of December 26, 2015 and
December 27, 2014, respectively, approximates fair value.
Financial assets and liabilities are categorized, based on the inputs to the valuation technique, into a three-level fair value
hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and
liabilities and lowest priority to unobservable inputs. Observable market data, when available, is required to be used in making
fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within
which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value
measurement.